Pilon Limited v Breyer Group Plc [2010] EWHC 837 (TCC)

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Summary

Where there is no agreement between the parties, whether express or implied, as to the binding nature of a adjudicator’s investigation into his own jurisdiction, the results of such an investigation will not temporarily bind the parties pending the final determination of a dispute, and the challenger can defeat any subsequent enforcement proceedings by showing a respectable case that the adjudicator had reached an incorrect conclusion as to jurisdiction.  Where an adjudicator erroneously restricts his decision on the basis of a mistake as to his own jurisdiction, this may constitute a breach of the rules of natural justice and, in certain circumstances his decision may accordingly be unenforceable.  Where there is only one dispute referred to adjudication then any “bad” parts of that decision will not be severable.  Where there is an application for stay of execution on the grounds of claimant’s impecuniousity, the burden of proof will, ultimately, be on the defendant to show that the claimant is unlikely to be able to repay the judgment sum in the event that the adjudicator’s decision is successfully challenged in subsequent proceedings, not on the claimant to show that the judgment sum is, or will be, capable of being repaid.

Technology and Construction Court, Mr Justice Coulson

Background

The defendant (“Breyer”) employed the claimant refurbishment contractor (“Pilon”) on a variety of different projects, including one project in Ealing, West London.  The work on the Ealing project was divided into two batches, known as batches 1-25 and batches 26-62.  In summer 2008 a dispute arose between the parties in relation to the Ealing project and Pilon left site.  In January 2009 Pilon entered into a Company Voluntary Arrangement (“CVA”).  In September 2009, Pilon issued an interim application for payment for batches 25-62.  Breyer refused to pay, claiming that it had overpaid in relation to batches 1-25.  Pilon commenced an adjudication.  The adjudication notice was limited to batches 26-62.  Pilon's primary case was that it was entitled to that sum without any deduction whatsoever, because Breyer had failed to serve either a payment or a withholding notice.  Breyer argued that, pursuant to the terms of the contract, it was not obliged to serve such notices, but its principal defence was that it was entitled to set off the overpayment on batches 1-25.   The adjudicator decided:

  • Pilon was not automatically entitled to the sum which it had applied for. The application was challenged by Breyer, and the absence of payment notices and/or withholding notices did not mean that the detailed valuation exercise could be bypassed.

  • He did not have the jurisdiction to consider Breyer's argument in relation to the alleged over-payment on batches 1-25 because the notice of adjudication made plain that the dispute was limited to batches 26-62.

  • Having performed the detailed valuation exercise, he awarded Pilon £200k. 

Breyer refused to honour the adjudicator’s decision; Pilon commenced enforcement proceedings.

Issues

The Court was asked to address the following issues:

  • Was the adjudicator’s decision as to his jurisdiction temporarily binding on the parties pending final determination of the dispute by way of litigation or arbitration?

  • Had the adjudicator incorrectly restricted his jurisdiction and if he had, what were the implications?

  • Was the overpayment point one which Breyer might in any event have taken?

  • Was the decision severable to allow enforcement of that part of it which was not covered by the alleged overpayment.

  • In any event should there be a stay of execution because of Pilon’s impecuniousity?

Decision

The Court held:

  • Unless the parties have agreed to be bound by an adjudicator’s investigation into his own jurisdiction then his ruling on that issue will not be determinative and the challenger can defeat any subsequent enforcement proceedings by showing a respectable case that the adjudicator had reached an erroneous conclusion as to jurisdiction.  An agreement to be bound by the adjudicator’s investigation into his own jurisdiction may be express or implied.  An implied agreement may arise where the objecting party fails to reserve its position, or has unilaterally waived any jurisdictional objection.  On the facts, Breyer had not agreed, expressly or impliedly, to be bound by the adjudicator’s findings.

  • With regard to the question of whether or not the adjudicator had taken an erroneously restrictive view of his jurisdiction, the Court summarised the law as follows:

    The adjudicator in this case had incorrectly restricted his jurisdiction.  He had failed to appreciate that Pilon was seeking not only an interim valuation of batches 26-62, but also an interim payment of any sum     considered owing to it.  The latter issue, of necessity, involved a consideration of Breyer's defence based on the alleged overpayment on batches 1-25.  On the facts, the adjudicator’s failure was deliberate and was material to his decision.  Further, it had been brought about by Pilon’s attempt to seek a tactical advantage by confining the notice of adjudication to batches 26-62 and urging upon the adjudicator the argument that he had no jurisdiction to consider batches 1-25.
      • The adjudicator must attempt to answer the question referred to him. The question may consist of a number of separate sub-issues. If the adjudicator has endeavoured generally to address those issues in order to answer the question then, whether right or wrong, his decision is enforceable.

      • If the adjudicator fails to address the question referred to him because he has taken an erroneously restrictive view of his jurisdiction (and has, for example, failed even to consider the defence to the claim or some fundamental element of it), then that may make his decision unenforceable, either on grounds of jurisdiction or natural justice.

      • However, for that result to occur, the adjudicator's failure must be deliberate.  If there has simply been an inadvertent failure to consider one of a number of issues embraced by the single dispute that the adjudicator has to decide, then such a failure will not ordinarily render the decision unenforceable.

      • Any such failure must also be material i.e. the error must be shown to have had a potentially significant effect on the overall result of the adjudication.

      • A factor which may be relevant is whether or not the claiming party has brought about the adjudicator's error by a misguided attempt to seek a tactical advantage.

Accordingly the adjudicator had breached the rules of natural justice and his decision was in principle unenforceable. 

  • The adjudicator had expressly decided that no payment and/or withholding notices were necessary and Breyer was therefore entitled to rely upon the overpayment defence.  Pilon could not seek a declaration under CPR Part 8 to the effect that the adjudicator was wrong on this point, and that the contract required such a notice before the overpayment claim could be considered, because (a) the contract contained an arbitration clause and therefore only an arbitrator could decide finally that a withholding notice was or was not necessary, and (b) such an approach would amount to a case of approbation and reprobation (i.e. supporting and attacking the decision at the same time), which was impermissible for a party seeking to enforce an adjudicator's decision.

  • Applying the principles set out in Cantillon v Urvasco , this was not a case where the “bad” portion of the decision was severable.  Only one dispute had been referred to adjudication, namely what, if anything, was due as a result of Pilon’s application for payment in respect of batches 26-62.  Further, there was a risk that the whole decision was tainted by the adjudicator’s erroneous approach to his jurisdiction.

  • Although, having found as above, it was unnecessary to consider the issue of Pilon’s impecuniousity, the Court proceeded to do so.  It held that the burden of proof, ultimately, was on Breyer to show, on the balance of probabilities, that the money was unlikely to be repaid in the event that the adjudicator’s decision was successfully challenged in arbitration proceedings, not on Pilon to show that it could be repaid.  On the facts, the Court held that it was likely that Pilon would not have been able to repay sums that may be found to be repayable and stay of execution would therefore have been ordered.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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